Don’t Take The Client At His Word

Given all the energy bankruptcy lawyers spend extracting information from clients, it’s discordant to point to a situation where you, as the bankruptcy lawyer, should blow past the client’s input. But here’s the situation where that is true:

Don’t list the debtor’s interest in a decedent’s estate without further inquiry.

Ask the client if they are an heir or have an interest in an estate, and 9 times out of 10, they will tell you that they have an interest in their parents’ estate. OK, that must trigger the next question: are your parents living? And then you find that the parents are alive, their living trust is, of course, revocable, and there may be nothing left when the parents pass away.

What your client has just described is an expectancy. The client may have an interest in the estate under the present will or trust, but has no enforceable rights, today, in the testator’s assets, and no power to prevent changes or consumption of the assets.

Question 20 on schedule B asks for “Contingent and noncontingent interests in estate of a decedent, death benefit plan, life insurance policy, or trust”. In my view, a debtor should list here rights in a decedent’s estate (or any of the other kinds of listed assets) only if the debtor’s right is present, fixed and immutable. So, if the testator has died leaving the client a share of an estate, it is scheduled here. Likewise, if the debtor is a residual beneficiary of a trust whose terms cannot change, it belongs on Schedule B.

But where the debtor simply expects to inherit from living persons or under instruments that are subject to change, omit mention of it.

Otherwise you have a trustee inquiring about the nature and value of a scheduled asset that isn’t really an asset at all. Bankruptcy practice is challenging enough without inviting unnecessary complication.